Thursday, October 24, 2013

CapitaMall Trust : AEIs offset moderating rental outlook (CIMB)

CMT announced more asset enhancement initiatives (AEIs) at Tampines Mall, which is expected to raise FY15 DPU. AEIs are still CMT’s key NPI driver as retail sales and shopper traffic growth remain flat. We think that the same-store rental outlook remains moderate.

CMT’s 9M13 DPU was in line at 73% of our full-year estimate (3Q13 at 25%) and consensus. We roll over our valuation to FY15 estimates and raise our DDM-based target price (7.3% discount rate) by 3%. We lower our DPU estimates by 1.4% in FY13 and 0.6% in FY14 but raise DPU by 2.2% in FY15, based on tweaks to our model and higher rent from Tampines Mall. Maintain Neutral.

AEIs still the key driver
The completion of AEIs at Bugis+ and The Atrium, as well as the completion of J-Cube contributed the bulk of the 12.9% yoy growth in 3Q13 NPI. 3Q13 DPU rose 9.7% yoy as a result. For CMT’s remaining portfolio, NPI growth was flatter, at 4.6% yoy due to the 6.3% positive rental reversion for new leases/renewals achieved three years ago (2.1% p.a.). Its portfolio occupancy remains robust at 99.5% but overall tenant sales growth YTD slowed to 2.8% yoy.

Westgate and more AEIs to drive FY14-15 DPU
FY14 will see sales/earnings contributions from Phase 1 of Bugis Junction AEI (95% preleased, expected completion in 4Q13) and the completion of Westgate retail mall (70% preleased). The commencement of Bugis Junction phase 2 AEI is expected in 1Q14 and completion by FY15. CMT also announced that it will convert around 25k-30k sf of rooftop space in Tampines Mall, which is expected to return 8% on the S$36m capex or c.S$3.4m to CMT’s revenue. This is slated for completion in FY15.

Defensive, but not cheap
CMT’s portfolio remains defensive but at a P/BV of 1.2x and compressed FY15 yield of 5.7% (against a rising interest rate environment), we believe that positive surprises in retail sales and accretive acquisitions are needed to re-rate the stock from current levels.

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